FIRE and other early retirement strategies

By Jon Scott

Abstract: This article covers the principals of Financial Independence, Retire Early and its different iterations. Those who intend on retiring early (before 60) or wish to pursue a lower paying career they are passionate about before age 40 will want to read this article.

If you’re not a fan of working past 50, you’ll want to read this. FIRE stands for Financial Independence, Retire Early. At a high level, FIRE involves evaluating every single spending decision to determine if it's an absolutely necessity, and saving or investing all money that is not spent on essential expenses. Once you amass savings worth 30 times your annual income, you ideally should be able to retire at an early age (usually around 40 or after) and not need to rejoin the workplace. The appeal of FIRE is the ability to no longer have to work for money, meaning you can spend the rest of your life after retirement doing what you please. This could be spending time with loved ones, traveling, pursuing hobbies, or whatever else brings you joy and satisfaction.

Online Fire Communities

There are numerous FIRE communities across multiple the internet:

Reddit

  • Financial Independence / Retire Early

    • This forum is composed of more than 1.6 million redditors. The forum provides guidance on reaching financial freedom, meaning not having to work for money.

Facebook

  • Financial Independence Retire Early FIRE

    • This is a group of nearly 20,000 members providing info on FIRE techniques, sponsored by The Black Book of the Master Mind.

Blogs

  • Financial Samurai

    • A blog by Sam Dogen who himself implemented the FIRE method himself after working 13 years in the financial industry, now runs his blog as his primary source of income while netting $195,000 a year on his investments alone.

  • Mr. Money Mustache

    • This blog provides advice from Pete Adeney, who was able to retire before the age of 30 thanks to him and his partner living below their means and investing their savings in conservative Vanguard Index Funds and rental homes. He started this blog in 2011 and continues to post financial advice to this day.

  • You can find more blogs and their descriptions here

CoastFIRE

  • This method involves front-loading tour your retirement savings and relying on compounding interest and dividend reinvestment to reach your Coast FIRE number. However, the coast part of this FIRE strategy standings for coasting to retirement, since you don't actually retire when you reach your CoastFIRE number. Instead, you pick up a side hustle or other revenue stream to only cover your current expenses until retirement. Meanwhile, the money invested towards your retirement grows. You can decide at what point to retire.

LeanFIRE

The most stringent of the major FIRE categories. LeanFire means investments only cover basic necessities only such as food, transportation and rent. There is no room for luxuries either and it is difficult to live in a major city or have kids when employing this strategy. People who participate in LeanFIRE often supplement their retirement (once reaching their number) with consulting, a part-time job blogging, and more. Retirement before 60

FatFIRE

FatFIRE is the most luxurious of all the major FIRE types. FatFire involves saving enough for retirement that you are able to live the lifestyle you want without making any sacrifices. A rough amount for a fat fire budget depends on where you live but a rough estimate would be at least $200,000-$300,000+ in passive income from investments each year. Though hard to obtain, FatFire allows you to live luxuriously in retirement by being able to comfortably afford travel, newer cars, expensive restaurants, and a large house/condo or expensive apartment. Retirement before 60.

BaristaFIRE

Perhaps the most interesting of the FIRE strategies. Involves retiring early because of early savings, but having a spouse that still works while you also take on a part time job. Sometimes the part-time job is necessary, other times it is because the spouse who does not need to work doesn't feel like a deadbeat. BaristaFIRE is much less glamourous than FatFIRE but also not nearly as spartan as LeanFire. Ideally, with BaristaFIRE the full time income of one spouse will allow for a FatFire retirement. Retirement before 60 but with part-time job

ChubbyFIRE

With FatFIRE you can do everything. With ChubbyFIRE you can do anything. Basically, ChubbyFIRE allows you to prioritize the activities and items you want in retirement, but you cannot have it all such as a house in a wealthy area, expensive car, and multiple vacations a year--with ChubbyFIRE you have to choose which items mean the most and splurge on a couple items or experiences. All these luxuries would be possible for someone practicing FatFIRE. Retirement before 60.

How To Start

Create A Plan

As with any financial goal, you will need to start by making a long-term plan. The factors to consider would be your current income, necessary living expenses, future financial needs, and planning how to reduce your future spending. It is important to consider personal elements as well such as your health and the needs of any dependents, if applicable. You will also need to consider your future living expenses, for example if you will need to buy a home at some point. You will also want to calculate a rough estimate of how much money you will need to save. One method of calculating how much money you should have invested is to take your annual expenses and multiply that number by 25.

Pay off Debt

You will want to pay off any high interest debt, for the compounding of debt–especially high interest debt–will only accumulate and work against your savings if you allow the debt to compile. Higher interest debt includes credit cards, vehicles, and private loans.

Maximize Retirement Vehicles

You will want to save the maximum amount possible in your 401K and IRA accounts, if applicable. It is also advantageous to max out an HSA program if you have one.

Reducing Your Spending and Increase your Savings

This is where the action begins. You will want to reduce your spending. This includes reducing expenses as much as possible, meaning everything you spend money on should be necessary. No Starbucks coffees, expensive dinners, or first class travel. Occasionally you can splurge, but extraneous spending should be little to none. At the same time, the money you save should be invested.

Invest

First and foremost, make sure to maintain your emergency fund. Which investments will depend on your particular FIRE technique as well as your risk tolerance, but this money should be working for you in some capacity. However, some examples include real estate, stocks, bonds, private notes, and CDs.

Increase Your Income

You will want to increase your income. This could include increasing your pay at work or starting/growing your side hustle. Either way you will want to find a method of growing your income. Despite your growing income, you will not want to change your spending habits. Save as much as possible and avoid almost all necessary spending

Make Sure to Treat Yourself… Occasionally

Though FIRE is all about eliminating unnecessary spending, saving, investing, and increasing your income you will also want to keep your sanity. This means occasional allocations for items, experiences, or other expenses that increase your happiness. FIRE does require a lot of sacrificing for long term payoff, but it doesn’t mean living like a scrooge for a decade or two.

Retire Once You Reach Your Number and Keep Withdrawals Under 4%

Once you reach your investment number, you can retire! However, this doesn’t mean being irresponsible. You will want to withdraw no more than 4% of your portfolio value each year. Another factor to consider is the market–this will largely depend on where your money is invested. For example, if your money is mostly in stocks, you will want to be aware of what direction the stock market is going–is there a large recession looming that will batter stocks? If you are in the housing market and own a large number of rental properties, you will want to research the rental market to see where prices are going. It may be a smart idea to reallocate your investment portfolio as you grow older.